Does my elderly mother, who does not earn enough annually to file taxes, need to file taxes due to selling her house for $225,000 this year? This is in Massachusetts.

[B_Erlandson]

She has lived at the home for over 30 years.

[tagteam]

If she does not otherwise have enough income to be required to file a return and she has owned and used the home she sold as her main home for a period aggregating at least two years out of the five years prior to the date of sale then she most likely will not be required to file a return.

See https://www.irs.gov/taxtopics/tc701

However, note that if she received (or does receive) a 1099-S for the sale, then she will have to file a return but should be able to exclude the entire $250,000 (note that she should normally not receive a 1099-S from the closing agent given the sales price).

[B_Erlandson]

Thank you for the quick response and insight.

So they did supply a 1099S with the check, but on the 1099S it showed exactly 50% as the proceeds. Not sure I understand why that would be the case.

I suppose however I will need to ensure we get her taxes done this coming season.

One follow-up if you don't mind, but with the 1099S would that require filing both state and federal? I didn't see anything differentiate the two in the link provided.

Thanks again.

[tagteam]

50% of the proceeds on the 1099-S or what she received in the form of a check?

Is anyone else on title or did she have a mortgage?

Re the state return, most typically follow federal (i.e., if she has to file a federal return, she most likely will have to file a state return as well).

[B_Erlandson]

The 1099S, box 2 for gross proceeds shows 50% of the sale price, so $112,500.

My father was once on the deed but passed away this year. I am not sure if that is the reason.

There is no mortgage however, it has been paid off for some time now.

Thanks for the additional input on filing.

[tagteam]

I am sorry for your loss. 

Your father being on title would explain the 50% if the 1099-S was issued to your mother individually.

[B_Erlandson]

Thanks for everything.

I truly appreciate the assistance.

Have a great holiday season.

[Opus 17]

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@B_Erlandson wrote:

One follow-up if you don't mind, but with the 1099S would that require filing both state and federal? I didn't see anything differentiate the two in the link provided.

The 1099-S will be sent to the IRS, so she needs to file a federal return so they have something to match up, even though she will report no taxable income from the sale.  It is possible that she would not have to file a state return at that point, if she is below the state filing threshold for taxable income.  In the future, the state may check their records against the IRS, see there was no taxable income, and so the state won't have reason to complain.  However, for the extra filing fee ($25-50, depending on which Turbotax product you use and when you file) you would have piece of mind that, by putting down on paper that no tax is owed, there won't be misunderstandings in the future.  

(Note that, as the only owner at the time of the sale, the entire gain is reportable by her, even though the 1099-S only shows half.)

(Also note that "proceeds" are never taxable, the gain is taxable.  Gain is the difference between the adjusted cost basis and the selling price.  If we took an extreme example and imagined the home was purchased for $100,000 and sold for $1 million, but the proceeds were only $250,000 because there was a previous mortgage or line of credit that was paid off, there would conceivably be up to $900,000 of capital gains.  Your mother would have received a partial step-up in basis when her husband died, which will affect the gains calculation.  Ask further if you want more explanation on this.)

[tagteam]

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@Opus 17 wrote:
(Note that, as the only owner at the time of the sale, the entire gain is reportable by her, even though the 1099-S only shows half.)

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We don't know the circumstances in terms of how title was held at the time of the sale nor how the settlement agent handled the death of the mother's husband. 

[Opus 17]

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@tagteam wrote:

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@Opus 17 wrote:
(Note that, as the only owner at the time of the sale, the entire gain is reportable by her, even though the 1099-S only shows half.)

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We don't know the circumstances in terms of how title was held at the time of the sale nor how the settlement agent handled the death of the mother's husband. 

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Since the questioner does not know why the 1099-S only listed half the sale, I think it's a reasonable assumption that the wife inherited her husband's half of the home.  If the home was known to be partly owned by someone else so that the mother only received half the proceeds, the question would have been asked differently or not asked at all.  

[tagteam]

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@Opus 17 wrote:
Since the questioner does not know why the 1099-S only listed half the sale, I think it's a reasonable assumption that the wife inherited her husband's half of the home.

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We still don't know how the settlement agent handled the transaction nor how title was being held at the time the sale was closed. 

If the parties held title as JTWROS or TBE, then a death certificate should have been sufficient to include the entire proceeds on the mother's 1099-S. Regardless, in that situation, the mother would have acquired the husband's share by operation of law, not "inheritance".

If title were being held by the parties as TIC, then the result outlined here could obtain (for a few reasons) and further, the settlement agent could simply have errored in splitting the proceeds in half in that scenario.

ALSO NOTE: Since the sales proceeds were $225,000, the settlement agent would not even be required to issue a 1099-S provided there was assurance that the house was the principal residence of the seller and the gain would be excludable under Section 121.

[B_Erlandson]

I just had a chance to look at the title and original paperwork and it was JTWROS.

If I am understanding things thus far, technically my mother shouldn't have been issued a 1099-S as the sale of the house was both her primary (and only) residence for over 30 years, and below the $250,000 threshold.

But since she was issued one (with only half of the actual sale price listed), it may be in our better interest to simply file a state and federal return for the 1099-S.

Is my understanding correct?

Thanks!

[tagteam]

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@B_Erlandson wrote:

But since she was issued one (with only half of the actual sale price listed), it may be in our better interest to simply file a state and federal return for the 1099-S.

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Yes, the IRS has a matching program so a return should be filed and there doesn't appear to be much of a downside in reporting the entire sales proceeds of $225,000 since all of it will fall within the home sale (Section 121) exclusion.

[B_Erlandson]

Perfect.

Thanks again!